The first thing I want to note is that long-term productivity projections I've seen hover around 2%, and long term growth in the labor force around 1%. Holding a few things like hours per worker constant, this suggests a long-term "potential growth" rate of 3%. And, in fact -- this is really what I want to note here -- the unemployment rate drop from 6.3% in June of 2003 to 4.6% in June, 2006, constitutes a growth in the employment rate of 0.6% per year, as GDP growth averaged 3.8%. So the rest, perhaps, has been in line with these projections.

The next corollary, though, is that growth won't persist much above 3% unless the unemployment rate is to keep dropping, ceteris paribus. (It actually rose to 434% in August, incidentally.) If it does that, we're building some major inflation pressures for the next 2 years or so, and the fed will have to keep raising rates.

First American Funds recently cut its equity exposure to "neutral" from "overweight," saying it sees a weakening environment for stocks through the rest of the year.

Among the reasons for the likely downturn, Keith Hembre, First American's chief economist, pointed to the disconnect between market expectations that the Fed is done raising rates and analyst expectations that the S&P 500 will still post double-digit earnings growth this year.

"The environment in which you see earnings growth at that level is not consistent with the Fed keeping rates steady or lowering rates," Hembre said.

"One has to give, either the earnings or the Fed," he added. "We think it will be the earnings, but neither is good for stock markets."

It's always hard to say exactly what kind of growth "the market" has baked in, but I'm inclined to agree with the macroeconomic assessment, in any case.

The Open Market Committee didn't raise interest rates today. The market fell on worries that Bernanke isn't serious about combating inflation, or possibly because the Fed's inaction suggests a slowing economy. If the market changes its mind and ends up for the day, it's because securities are worth more in a lower interest rate environment.

Our analysis of national survey and other data suggests that retiring boomers are not likely to sell financial assets in such a way as to cause a sharp and sudden decline in financial asset prices. A large majority of boomers have few financial assets to sell. The small minority who own most assets held by this generation will likely need to sell few assets in retirement. Also, most current retirees spend down their assets slowly, with many continuing to accumulate assets. If boomers behave the same way, a rapid and large sell off of financial assets appears unlikely. Other factors that may reduce the odds of a sharp and sudden drop in asset prices include the increase in life expectancy that will spread asset sales over a longer period and the expectation of many boomers to work past traditional retirement ages.

In other words, most baby boomers won't be liquidating savings because most of them don't have any. Actually, a lot hold equity in their homes, which isn't sufficient, but it's better than if they were broke.

Nonfarm payroll employment increased by 113,000 in July, and the unemployment rate rose to 4.8 percent. The increase in payroll employment was in line with the average monthly gain for the second quarter of this year (+112,000), but was down from the average monthly gain for the 12-month period ending in March (+169,000). Average hourly earnings increased by 7 cents, or 0.4 percent, in July.

The Nasdaq is now officially an exchange, which may be a purely governance/regulatory thing; I don't know. Up until a few years ago, the Nasdaq system didn't actually include an execution platform, as an exchange does; it was simply a bulletin-board system (in effect) allowing dealers to post quotes and other dealers to see them and arrange to buy or sell accordingly. I'm pretty sure, though, that that changed a while ago.

Reports the last couple days suggest unit labor costs advanced at a 312% to 4% rate in the second quarter, though the formal number isn't out yet. This would be more alarming to me if it didn't follow such low numbers in two of the previous three quarters; on a plot, labor spending looks like it's catching up to where, a year or two ago, it might have been expected to be at this point. Still, if we get more numbers like this in coming quarters, it's either going to have to pass through to inflation or it's going to squeeze corporate profits; the stock market should be thrilled about neither, but they have different implications for fed policy.